ARGENTINA: PRESIDENT DEFENDS ADMINISTRATION IN

C O N F I D E N T I A L BUENOS AIRES 001080

SIPDIS

E.O. 12958: DECL: 08/04/2038
TAGS: PGOV PREL ECON AR
SUBJECT: ARGENTINA: PRESIDENT DEFENDS ADMINISTRATION IN
FIRST PRESS CONFERENCE

REF: A. BUENOS AIRES 963 AND PREVIOUS

B. BUENOS AIRES 980

C. BUENOS AIRES 610

D. BUENOS AIRES 629

Classified By: Ambassador E. Anthony Wayne for reasons 1.4 (b) and (d)


1. (SBU) Summary: On Saturday, August 2, President
Cristina Fernandez de Kirchner (CFK) defended her
administration's policies in her first press conference in
her eight-month tenure. This was a departure from the
Kirchners' longstanding media strategy, which has irked the
media by not holding press conferences since CFK's husband
and former President Nestor Kirchner (NK) took office in
2003, preferring to "talk directly to the people". It also
marked a change of style for the combative First Couple, who
stoked anger in recent months with harsh rhetoric against the
farm sector (ref A). While CFK's remarks were different in
tone, all the major dailies carried photos from the press
conference portraying her as defiant with some articles
describing her as "unrepentant".


2. (SBU) During the press conference, CFK said she had "no
regrets" in pursuing ag export taxes, dodged a question on
whether VP Julio Cobos was a "traitor" for his tiebreaker
vote against the taxes (ref B),and asserted that her
administration was not imposing sanctions on those provinces
whose governors sided with the countryside. She also
defended the credibility of Argentina's national statistics
agency INDEC and backed her controversial Internal Commerce
Secretary, Guillermo Moreno, who is widely accused of
engineering under-reporting of domestic inflation. She
dismissed critics who claim that her administration is ruled
by a "double command" with her husband calling most of the
shots. She indicated that Argentina's bilateral relationship
with the United States was "normal and serious" and answered
questions on the Antonini-Wilson scandal and the Fourth Fleet
positively. She also touched on a wide range of economic
issues, including Paris Club, Doha, exchange rate policy,
investment climate concerns, and the bullet train. End
Summary.

--------------
Would Repeat Variable Export Tax Exercise
--------------


3. (SBU) President Cristina Fernandez de Kirchner (CFK)
gave a nearly two-hour press conference on August 2 in a
post-agricultural crisis effort to revitalize her presidency
and win back popular support. The event broke a five-year
record begun by her husband and former President Nestor
Kirchner (NK),who claimed to prefer to "talk directly to the
people" as opposed to holding press conferences. Most local
analysts believe the timing was designed to offer a poignant
official counterpoint to the inauguration of the annual
Buenos Aires Rural Exhibition organized by Argentine Rural
Society (SRA) head Luciano Miguens. This annual week-long
fair, emblematic of Argentina's rural cattle ranchers, was
supported by representatives of the three other rural
agricultural organizations that, along with SRA, comprised
the "Mesa de Enlace" (Liaison Table) which worked to defeat
CFK's variable export tariff law in the Senate in July (ref
B). CFK's press conference succeeded in overshadowing the
rural exhibition in the local press, but it did not prevent
critical reviews of her remarks.


4. (SBU) During the press conference, an unrepentant CFK
said she had no regrets about her defeated plan to implement
a variable tax scheme on agricultural exports saying that
"she would do it all over again." She stated that "for the
first time since returning to democracy (in 1983),the
institutions were able to seriously discuss ... a law
that...relates to the redistribution of income." She
criticized the agricultural sector protest, maintaining that
her only mistake was to underestimate the power of the
opposition her mobile tax proposal would generate from
economic interests. In the end, CFK said, those who gained
from Congress' rejection of variable export tariffs were the
large exporters ) a group that the Kirchner administration
has repeatedly identified as representatives of a selfish,
oligarchic elite.


5. (SBU) CFK justified her tough stance with the rural
sector due to what she called the "virulent" nature of the
farmers' protests, which blocked roads and kept food from
markets. She added that high agricultural profits in the
face of soaring world food prices "should be taken up as an
instrument of economic policy". Nevertheless, CFK did offer
an olive branch, saying that the GoA's Bicentennial Agenda

(referring to a delayed GoA "Social Pact" initiative that was
to have been ratified by the government, unions and business
groups - ref C) was open to all sectors, presumably including
the agricultural sector. In his reaction to CFK's remarks,
the President of Argentina's Rural Confederation Mario
Llambias said he found the response strange since the
agricultural sector protests and assemblies had all been
peaceful.

--------------
Cobos and Cordoba
--------------


6. (SBU) CFK also offered a thinly veiled criticism of Vice
President Julio Cobos, dodging a question about whether she
believed Cobos is a traitor by asserting her "respect for
institutions." She also denied that her administration is
sanctioning provinces for challenging the Casa Rosada. In
recent weeks, there have been allegations that the federal
government has withheld federal funds to provinces that
backed the agricultural sector. According to the local
press, the National Social Security administration in 2007
confirmed that the federal government owes Cordoba province
approximately AR 1.5 billion in social security payments.
The province claims that the federal government owes it an
additional AR 1 billion. Facing a budget crunch, Governor
Juan Schiaretti successfully passed in late July an austerity
plan through the provincial legislature that would reduce
payouts to retirees.


7. (SBU) This not only provoked labor protests in Cordoba,
but also prompted the dispatch from Buenos Aires of
Kirchner-backed piqueteros armed with sticks and slingshots
that resulted in dozens of wounded police officers and
protestors. It has since been reported that 21 out of 25
arrested for violence during the protests were from Buenos
Aires province. Leading editorialist for La Nacion Joaquin
Morales Sola reports that "there is concern among the Cordoba
Province Peronist party that NK has given secret instructions
to destablize Cordoba Governor Juan Schiaretti, to the point
of justifying federal intervention in the province." Mariano
Grondona's op-ed in La Nacion put it more directly when he
asked whether these actions represent NK's revenge for
Schiaretti's pro-countryside position in the agricultural tax
debate.

--------------
CFK Justifies Superpower Budget Authority
--------------


8. (SBU) The GoA executive's "Superpower" authority to
designate the use of "extraordinary revenues" without
congressional oversight has long been interpreted by economic
analysts as a mechanism to enhance federal government control
over provincial governors. With official annual budgets
presented to Congress by NK routinely underestimating
projected tax revenues, extraordinary revenues were seen to
be directed by the executive to favored allies, rewarding
those provinces who supported government policies. CFK
sidestepped this issue, arguing that Superpower authority had
been granted by congress in the prior Nestor Kirchner
administration and that Congress "has control of the budget's
execution...the control of public monies is absolute."
(Note: Congress votes to renew the executive's superpower
authority every December, and there is speculation that this
may be the Kirchners' next big legislative battle.)

-------------- ---
CFK Supports INDEC and Price Control Czar Moreno
-------------- ---


9. (SBU) CFK's new Chief of Cabinet, Sergio Massa had, on
July 25, acknowledged that the credibility of INDEC (the GoA
statistics agency that calculates "official" inflation
indices) needed to be "recovered," and raised hopes among
economists and private sector organizations that the GoA
would finally address this growing embarrassment. However,
CFK's remarks to the press kept to the GoA party line:
"INDEC uses a measuring system whose (CPI index) modification
was announced a few months ago (ref D)...such measuring
systems always elicit doubts in all societies and in all
economies." She added that public doubts over INDEC's
credibility had been prompted by media manipulation.


10. (SBU) Following Massa's appointment, there had also
been considerable speculation that Commerce Secretary
Guillermo Moreno, who is also responsible for policing the
GoA's price and export control regime, would be moved to a
less controversial portfolio. During the press conference,

CFK specifically defended Moreno, the senior administration
official most closely linked to the GoA's now 18-month long
intervention in INDEC: "My God, why always 'satanize'
officials?" she said, affirming that the polemical Moreno was
"honestly and efficiently" carrying out the President's
instructions. CFK added that she would make no further
changes to her cabinet.

--------------
CFK Dismisses Double Command
--------------


11. (SBU) CFK dismissed critics who claim that her
administration is ruled by a "double command" with her
husband calling most of the shots. "Comments of that nature
come from a biased reading of reality," she said, adding that
"We're simply a political team that has worked for a long
time with the same vision and common ideas about the society
we want." She also disavowed rumors of her own resignation,
explaining that she said she had only written three
resignations in her life, with the most recent one being when
she resigned as Senator to become President.

--------------
CFK on U.S. Relations: "Normal and Serious"
--------------


12. (SBU) In responding to a question on U.S. bilateral
relations in the months after the Antonini Wilson suitcase
scandal, CFK said that while she had been very upset by early
reports of the arrest and the accusations, bilateral
relations with the U.S. were now "normal and serious." When
asked about changes in relations with a new U.S. president,
she confided that she had never followed an election with so
much interest as she did the current U.S. presidential
election. She remarked that the fact that an
African-American is one of the candidates says much about
changes in U.S. public attitudes over the past 40 years.
When asked about the Fourth Fleet, CFK said she heard
regional leaders express their concerns during the last
Mercosur Summit in Argentina and relayed that in addition to
the MFA's statement on the Fourth Fleet, she had passed these
concerns to Western Hemisphere Affairs Assistant Secretary
Tom Shannon and the U.S. Ambassador. She also indicated that
she received assurances from A/S Shannon about U.S.
intentions. CFK then shifted to talking about the ongoing
work in South America to develop a common defense project as
suggested by Brazil, which she supports.

-------------- --------------
Paris Club: Any Resolution Must Assure Economic Growth
-------------- --------------


13. (SBU) In response to a question on the /- US$ 8
billion in Argentine Paris Club debt outstanding to sovereign
creditors, CFK acknowledged GoA concern and admitted
"difficulties" should a resolution require Argentina to
submit to IMF oversight. Argentina "would be able to tackle
this issue conveniently, with serenity and the expectations
of a country that is keeping its commitments." But, she
concluded, preserving Argentina's continued economic growth
would be her guiding principle in resolving Paris Club
debt--a principle upheld in the GoA's earlier renegotiation
of its private sovereign debt when in 2005 the GoA offered a
take-it-or-leave-it bond exchange offer of some $0.30 on the
dollar plus GDP growth warrants as a sweetner).

--------------
CFK Defends Argentina's Position on Doha
--------------


14. (SBU) In response to a question on whether or not the
collapse of WTO Ministerial talks in Geneva would be on the
agenda with Lula, CFK acknowledged that Argentina and Brazil
had "different positions" in multilateral trade negotiations
but proceeded to defend lack of GoA movement towards an
agreement. She pointed out that Argentina's "industrial
development was substantially less" than in developed
countries, and is "different" than Brazil's, which "put us in
a difficult position". (Note: The GOA considers its domestic
industry to be less complementary to that found in developed
countries and argues that it would be hit harder by broad
liberalization.) She added that Argentine industry
representatives had accompanied the delegation to Geneva, and
so the GoA decision was not made "just by the government,"
but with the influence of the economic sector which "had
created the greatest number of jobs, and had helped the
sustained growth which we Argentines have had" since 2002.

-------------- --------------
Exchange Rate Policy Managed by Independent Central Bank
-------------- --------------


15. (SBU) An undervalued nominal exchange rate vis the U.S.
dollar has been a pillar of the GoA's economic policy mix,
designed to encourage exports and support the development of
domestic industry. Recent nominal appreciation of the
Argentine peso (due to central bank intervention) and real
appreciation (due to burgeoning domestic inflation) has
prompted private sector calls for a nominal devaluation to
maintain the currency's competitiveness. In response to a
question on the currency's value, CFK claimed that the
currency value is administered by an independent central bank
and that there is no "Presidential exchange rate."

-------------- -
CFK Underwhelmed by Business Sector Complaints
-------------- -


16. (SBU) Addressing a question on private sector
complaints regarding economic management, CFK said that
"business says one thing when talking to the media and
another when talking to government officials." The private
sector, she said, continues to invest, with $13 billion in
new investment in the first half of 2008 (Note: In fact, the
$13 billion number refers largely to potential investments,
including purchases of existing productive capacity,
declared by private sector companies) and that each day, she
meets with representatives of companies who are coming to
locate in Argentina.

--------------
CFK Ratifies Bullet Train Project
--------------


17. (SBU) CFK responded to a question contrasting
deteriorating conditions in the nation's rail and Greater
Buenos Aires' commuter rail systems with the GoA's huge US$ 3
plus billion project to build a bullet train from Buenos
Aires through Rosario to Cordoba. The GoA, she said, is
making a "great investment" in a "devastated" rail system,
but that it is difficult to improve the nation's rail network
with subsidized fares held as low as they currently are. The
bullet train, she continued, would "not require a single
centavo from the national budget," asserting that it is
fully financed by a consortium led by France's Alstom.

--------------
Press Reaction
--------------


18. (SBU) CFK's first press conference was a major occasion
for the Argentine media, which had complained heatedly about
the "anti-democratic" policies of the Kirchners--since they
first rose to power in 2003--to essentially ban genuine press
conferences with questions and answers. CFK was carried live
across the nation on television and radio, and her press
encounter was on every major front page Sunday morning,
August 2. Most major dailies carried photos from the press
conference portraying her as defiant and some articles
described her as "unrepentant." All dailies were obliged to
acknowledge, however, that she had taken a step forward by
giving this press conference and showing a more conciliatory
tone. Pro-Kirchner, leftist Pagina/12 gave this premiere the
most billing and offered a photo of a confident and smiling
CFK in front of the cameras under headline "The Debut." Most
of the press, however, placed its main focus on criticizing
CFK's content and to a lesser degree her personal style.
Most noted that nothing would change in the administration's
management.

--------------
Opposition Reaction
--------------


19. (SBU) The opposition appears unanimous in their view
that CFK's remarks at the press conference marks only a
change in style, not substance. Civic Coalition leader
Patricia Bullrich commented that CFK continues to ignore the
same problems, which are carryovers from NK's administration.
NK's former Economy Minister Roberto Lavagna lamented that
CFK continues to ignore the problems of inflation and
insecurity. Buenos Aires Mayor Mauricio Macri noted that
although her change of approach toward the press is positive,
her entire presentation was devoid of self-reflection. He
added that she did not address the people's desire for
leadership changes, such as Commerce Secretary Moreno's
resignation, the instability in Cordoba following the

Governor's announcement that wages and pensions would be cut,
and the nationalization of Aerolineas Argentinas. Radical
senator Gerardo Morales's opined "we are in the worst of
worlds," adding that CFK did not do anything more than ratify
the worst of her government. Vilma Ripoll from the Workers'
Socialist Movement noted that although the GoA continues to
promote wealth redistribution, the government maintains the
same level of inequality as during former President Carlos

Menem's administration.

--------------
Atmospherics
--------------


20. (SBU) The conference represented a significant change
from CFK's consistent avoidance of, and confrontational
approach toward, the media during her eight-month tenure. In
addressing the crowd of 150 journalists--the President,
appeared prepared and relaxed in responding to the 25
topically diverse questions (half of which were posed by some
of the 40 foreign reporters present),staying 15 minutes
longer than planned to address one last question. According
to local press reports, the conference was the brain-child of
new Cabinet Chief Sergio Massa, who organized two murder
board sessions to help her prepare for the anticipated
questions. Massa would not confirm the extent of his
involvement. Prior to the conference, she reportedly called
her closest ministers to the Presidential residence in
Olivos, including Massa, Interior Minister Florencio
Randazzo, Presidential Secretary Oscar Parrilli, and Media
Secretary Enrique Albistur.


21. (SBU) Legal and Technical Secretary Carlos Zannini and
presidential spokesperson Miguel Nunez, who in serving as the
conference moderator introduced himself for the first time in
his five-year tenure, were also present. Not surprisingly,
Vice President Cobos, who has had only one somber meeting
with CFK since his tiebreaking vote against the Senate export
tax, was absent. Local press reported that NK chose to watch
the proceedings on TV out of concern his appearance would be
a distraction. Following the conference, La Nacion described
CFK as "euphoric" and NK as "exultant".

--------------
CFK's Rise in the Polls
--------------


22. (SBU) According to an August 3 edition of Clarin, when
NK confided to consultants that the Casa Rosada needed new
polls that returned CFK to a positive image of 50 - 60%,
consultants considered it to be a "mission impossible".
CFK's popularity has suffered significantly as a result of
the farm conflict, dropping from 56% in January to 20% in
June when the conflict was at its worst. Her comments during
the press conference suggest a continued sensitivity to her
ratings and an effort to downplay the veracity of the
negative polls. Her approval rating seems to have improved
slightly, with La Nacion publishing a Poliarquia poll on
August 2 indicating that 31% of Argentines have a positive
image of CFK. Referring to that poll during the conference,
CFK said that the GoA had other polls that were different.


23. (SBU) Less than 48 hours after CFK's press conference,
however, pro-government Buenos Aires Economico (BAE)
published a separate poll by Equis and Rouvier and
Associates, in which 49.3% of Argentines viewed her
favorably. Ricardo Rouvier is an advisor to the Kirchners
and, according to la Nacion, helped prepare CFK for her press
conference. The paper claimed that he recommended that she
adopt a less confrontational approach during her public
appearances after reviewing her past speeches during the farm
conflict.

--------------
Comment
--------------


24. (C) CFK's press conference represents a clear effort to
adopt a more open and relaxed style with the media, perhaps
calculating that the hardline measures will be more palatable
when delivered cordially. The Ambassador had been told twice
last week that CFK had been receiving substantial advice to
adopt a less confrontational approach. CFK has been
criticized by the opposition and by members of her
government, including most recently her former cabinet chief
Alberto Fernandez, for not having a long-term vision and
learning from her mistakes. Perhaps at least one lesson she
has taken on board is to improve her conflict-ridden
relationship with the media.



25. (SBU) On style, she did well. In addressing the crowd
of 150 journalists, CFK refrained from finger wagging or
scolding, appearing calm, smiling and even joking. On
substance, however, she maintained the administration's
consistent position on every key issue. In the aftermath of
the Senate vote rejecting the GoA's variable export tariffs,
there had been some hope that a Kirchner administration
re-evaluation and attempt to regain the political initiative
offered an opening to substantive ) or at least incremental
) economic reform. CFK's press conference dashed these
hopes, however, with one of Argentina's best known pundits,
Juan Morales Sola, calling her responses to questions "pure
intransigence and ideology." CFK continued to demonize big
rural agriculture for the 120-day long agricultural crisis
(it was an "owners' lockout") and implied that the loss of
the export tariff vote in the Senate was merely one battle in
her ongoing struggle for "equitable income distribution"
(read expanded income transfer from Argentina's efficient
rural sector). Her ratification of massive state-sponsored
infrastructure projects (the bullet train) and of price
control czar Moreno's tenure, and her formulistic defense of
official INDEC statistics was a declaration of business as
usual.


26. (C) To be fair, on economic policy the GoA has recently
made some modest moves to address the impact of burgeoning
subsidies on the primary fiscal surplus. But these moves
have been more than offset by recent GoA efforts to pump
prime consumer spending via increases in the minimum wage, to
quasi-index pension payments to wage increases, and to limit
the impact of inflationary bracket-creep on income tax
payers. Absent more substantive GoA efforts to address
domestic inflation and control burgeoning subsidies, it is
unlikely Argentina will see the levels of investment in
domestic infrastructure needed to sustain economic growth.
To many observers here, CFK's press conference was another
opportunity lost to steer the ship of state's economic policy
agenda towards a safe harbor.
WAYNE